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Inside Nonconforming Markets

September 20, 2013

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Lower Loan Limit Would Shrink Agency Footprint, Test Non-Agency Capacity

A reduction in agency loan limits would make a small portion of today’s mortgage market ineligible for the government-sponsored enterprises, according to a new analysis by Inside Nonconforming Markets. However, industry participants suggest that lower loan limits will help increase participation in the non-agency market and test whether the sector can take even more share from Fannie Mae and Freddie Mac. Mortgages with loan balances greater than $417,000 accounted for ... [Includes one data chart] Read More

PennyMac Prepares Jumbo MBS, Looks Forward

PennyMac Corp. wanted to test the market for non-agency jumbo mortgage-backed securities but it wasn’t generating enough collateral through its conduit program and turned to a bulk purchase to get a critical mass. The $550.46 million PMT Loan Trust 2013-J1 is set to receive AAA ratings with credit enhancement of 7.75 percent for the top-rated tranche. Some 70.7 percent of the mortgages to be included in the deal were acquired in bulk from Bank of America, which aggregated the loans from ... Read More

Shellpoint Adjusts With Its Second Jumbo MBS

Shellpoint Partners is preparing to issue a $308.64 million non-agency jumbo mortgage-backed security and officials at the firm are hoping that interest rates stay calm at least until the issuance is completed. Interest rates spiked after Shellpoint offered its first jumbo MBS in June, a $261.58 million deal, prompting the company to voluntarily provide credit enhancement of 20.0 percent on the security – double what was required by the rating services – in an effort to attract investors. The latest deal features ... Read More

New Players Looking to Compete for Jumbo MBS

A number of companies are preparing to enter the non-agency jumbo mortgage-backed security market, bolstered by expected decreases to agency loan limits and eventual resolution of the conservatorships of the government-sponsored enterprises. David Akre, a managing director at Five Oaks Investment, said licensing for the real estate investment trust’s jumbo operations is nearly complete and the establishment of warehouse funding is 90 percent complete. David Carroll, CEO of Five Oaks, said increased competition ... Read More

Jumbo Underwriting Standards Loosening

Lenders have started to loosen their underwriting standards for jumbo mortgages in an effort to increase originations for borrowers who have performed exceptionally well in recent years. Loan-to-value ratio requirements in particular have loosened, allowing for lower downpayments or increased use of second liens. After the non-agency mortgage-backed security market collapsed in 2008, combined LTV ratios of 70 percent were common for jumbos as lenders looked to prevent pricey foreclosures on ... Read More

Regulatory Concern About Jumbo Interest Rates

An official at the Office of the Comptroller of the Currency warned that non-agency jumbos with interest rates lower than comparable agency mortgages are a sign that banks are chasing yield. Darrin Benhart, deputy comptroller for credit and market risk, said banks are taking on more interest rate risk and credit risk to maximize returns. “We are beginning to see signs of the classic cyclicality in banking where traditional lagging indicators are improving so bankers start to layer risk back into ... Read More

HEL Holdings Declining, Vintage Loans a Concern

Bank holdings of home-equity loans continue to decline, with mixed performance trends. Regulators warn that home-equity lines of credit originated before the financial crisis are a particular concern as the loans are set to reach their amortization periods. Banks and thrifts held $1.05 trillion in HELOCs, HELOC commitments and closed-end seconds as of the end of the second quarter of 2013, according to the Inside Mortgage Finance Bank Mortgage Database. The holdings declined by 1.9 percent ... [Includes one data chart] Read More

News Briefs

Higher-priced mortgages accounted for 3.0 percent of the number of mortgages originated in 2012, according to a Federal Reserve analysis of Home Mortgage Disclosure Act Data released this week. The loans had a 3.7 percent share of HMDA originations last year and a 26.0 percent share in 2006. The Consumer Financial Protection Bureau last week finalized a number of tweaks to pending mortgage rules. Adjustments were made to the servicing rule, loan originator compensation rule, definitions for ... [Includes three briefs] Read More

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